Rupee up 0.4% as recovery hopes brighten

Mumbai: The rupee rose, reversing an earlier slide, on speculation exporters bought the currency following its slide to an almost two-month low.

Companies earning overseas exchanged their dollars for the rupee, betting the local currency won’t weaken past 49 as an economic recovery lures back overseas funds. The International Monetary Fund on Wednesday said Asia’s third biggest economy will expand 6.5% in 2010, faster than an earlier forecast for 5.6% growth. The rupee also climbed as the ICE’s Dollar Index, a gauge of the greenback’s strength, dropped for the first time in six days.

The rupee rose 0.4% to 48.7175 per dollar at close in Mumbai, after dropping as much as 0.8% to 49.0275 earlier, the weakest since 15 May, according to Bloomberg.

The currency is Asia’s worst performer this month, with a loss of 1.7%.

The rupee fell earlier on concern more government stimulus measures will be needed to sustain a global economic rebound.

The currency weakened after the Group of Eight leaders said on Wednesday the recovery from the deepest recession since World War II remains too fragile for any reversal in policy assistance. The rupee also dropped on speculation India’s widening budget deficit, which the government forecasts may reach a 16-year high, will discourage investors.

“The rupee is under pressure because of mounting risk aversion across the markets of the world,” said Vikas Babu, a Mumbai-based foreign exchange trader at state-owned Andhra Bank. “Concerns about our own budget deficit are working against the rupee.”

Offshore forwards contracts indicate bets that the rupee will trade at 48.82 to the dollar in a month, compared with expectations for a rate of 49 on Wednesday.

The Bombay Stock Exchange’s Sensex dropped for a second day, its worst run in more than two weeks.